I'm thinking of hanging out my own shingle

[WonkoTheSane]

... as a part time side gig. I know there are some self-employed snopesters, and I thought I'd put the feelers out for advice, experiences, and so on.

Thinking of starting a 3D CAD modeling and drafting service. Concept development, solid modeling for molds, machine shop drawings, file conversions, reverse engineering of old stuff for updating, and redrawing old paper drawings into 3D CAD formats. Stuff like that.

My feeling about the industry is that B2B prospects are more likely if you have a corporate identity, and not just some guy working out of his basement. Website with gallery, etc... cool. Working on that one, although I suck as a web designer. What about filing papers? If I want people to write checks (by the dozen of course) to the company name, I need a business license to open an account, and they aren't cheap. Don't have a great deal (any, actually) of startup capital. Whatever I have to pay out will come out of my regular paycheck.

Any thoughts on the type of entity one would look into? Inc? LLC? Sole proprietorship?

Thanks for the advice...

Wonko

[jw]

Originally Posted by WonkoTheSane

... as a part time side gig. I know there are some self-employed snopesters, and I thought I'd put the feelers out for advice, experiences, and so on.

I think starting off part time is a great way of testing your market to see if a guy working from his basement can make a living from it.

I started off part time as a graphic designer/printer 15 years ago. I kept my another part time job until I was making enough money to justify ditching it.
I prepared detailed business and account projections to present to my bank and employment agencies.
I got a grant for equipment from a local employment partnership, because I convinced them that I was going to employ someone, even though I didn't for quite some years.

Over here been a sole trader is fine for this type of start up, but eventually I had to go to 'Limited'.

All I can say is that for me, I'll never go back to working for someone else as the freedom that self employment brings far outweighs a steady job with a regular paycheck.

[zerocool]

You may want to look at what sort of insurance you would need (in terms of liability). Indemnification clauses in your contracts may help, but it would be hard to protect yourself against negligence. Ask yourself if that is a risk you are willing to take (even if your work is good, do you have the resources to defend yourself?).

Also be aware that your employer might not like it (if you are a drafter for them) because your clients from your side job may go after your employer (they have the deep pockets after all). I know in engineering this is a big deal, I don't know about drafting specifically. You might want to look to an online community more specific to drafting/cad to find out how this usually works.

I don't know if there are any licensing requirements for drafting either, but they may affect what you can call your side business. (For example without being a state licensed PE, you could not use the word 'engineering' in your business name).

[Photo Bob]

WonkoTheSane:

I would start out as a Sole Proprietor at first just to see how things go. This will save you the cost of incorporating and filing a tax return should things not go as well as expected.

Once you start making money then it would be wise to incorporate and start paying yourself a salary. A Subchapter S Corporation would probably make the most sense for you. You still pay taxes on your profits on your 1040, but there are some real tax advantages in doing it this way.

If you form an LLC you will still be reporting your income on your 1040 unless you take on other partners (the IRS deems a single member LLC a "disreguarded entity"). While the LLC may offer you some liability protection, most of the tax advantages will be lost.

Of course it all depends on how well your business does so please talk to a CPA before making any decisions.

[WonkoTheSane]

I have thought about liability issues, and I'm strictly limiting things to a CAD operator role, and will make it clear that I am not offering engineering services. My hypothetical market isn't looking for engineering services for cost and for other reasons. I may in fact do some work for engineers.

There will certainly be indemnification clauses. I will not touch structural and architectural areas (not my bag, anyway), or invasive medical, or any other industry segment where life and limb are involved. Also, I'll have to include clauses to cover liability for legal (patent) issues as well as responsibility for any potential regulatory issues, suitability and merchantibility for a purpose, yada, yada, yada...

I'm trying to be careful, and I will certainly not be going beyond the prototype phase in any product development project, and indemnity clauses would be specific to the particular case. For re-drawing, modeling from drawings, data conversion, and other sundry grunt work, my liability should be limited to accuracy to the source material, as the actual design is not mine.

Guess I'll need to lawyer up. Eesh.

Regarding sole proprietorship... it's a personal liability as well, right? I am personally responsible for the work done, and anyone who sues can affect my (and my wife's) personal property... might be ok to start with, just for cost purposes. What about identity? Can I set up a fictitious name, such as WonkoTheSane's real name D.B.A MyBusinessName, and set up a separate checking account for that...?

Thanks for all the input so far

Wonko

[Photo Bob]

Yes, you would be personally liable with either a sole proprietorship or a corporation. The main purpose of an LLC is the protection aspect. You should consult a lawyer for details on that aspect.

You can set up a ficticious name for your business (it may be required even if you are just using your real name). You would definitely want to set up a separate checking account and use it for all business expenses. Even though all the money is technically yours, it makes it a lot easier for tax purposes and helps identifies you as a business owner.

It might seem like a lot of expense, but consulting with professionals can save you a lot of aggravation, and money, in the long run. I've seen people do it the wrong way and it is far more difficult and expensive to fix things after the fact.

[SplishFish]

If you plan to start your business from your home, check out the zoning regulations.

Part of the process of legalizing your business involves checking with your zoning laws and determining your business compliance. You wouldn't want to make the mistake of setting up a home business at home, only to find that zoning laws prohibit you from converting your home into a business area.

http://www.powerhomebiz.com/vol65/zoning.htm

I just did a quick search in Google for "zoning regulations for home business" and got 3,530,000 results.

[Just Jocko]

Originally Posted by Photo Bob

WonkoTheSane:

I would start out as a Sole Proprietor at first just to see how things go. This will save you the cost of incorporating and filing a tax return should things not go as well as expected.

Once you start making money then it would be wise to incorporate and start paying yourself a salary. A Subchapter S Corporation would probably make the most sense for you. You still pay taxes on your profits on your 1040, but there are some real tax advantages in doing it this way.

If you form an LLC you will still be reporting your income on your 1040 unless you take on other partners (the IRS deems a single member LLC a "disreguarded entity"). While the LLC may offer you some liability protection, most of the tax advantages will be lost.

Of course it all depends on how well your business does so please talk to a CPA before making any decisions.

I also recommend a sole proprietorship to start. It's what I use for my business. The only difference taxwise is that you file as self employed and you have to pay the appropriate taxes (to make up for the fact that there are no employer taxes being paid on your behalf). But it's an easy enough form and using a software like QuickBooks will help you to track the appropriate income and expenses for the form.

I have a company name but I do not have a corporate bank account at this time. I have clients write cheks to me personally and a line on my invoices says "Please make checks payable to Just Jocko." I just make sure to keep good records so that if I'm ever audited (or one of my clients is), I can show exactly what's what. IME it's pretty common for contractors who do no not have any employees to have checks wirtten to themselves, most of the ones I know do it. My brother, who owns his own programming business (and has for over 20 years) started out that way and waited IIRC 5-10 years before incorporating. And I think he did that primarily because it made it easier for subcontracting out work.

Feel free to PM me if you have any questions (or, ya know, you need business cards and the like).

ETA: And I would recommend having contracts for all jobs, even the small ones. It's easy enough to find sample contracts online and you can tweak them to fit the specifics of your work and each particular job. I do not do contracts per se, except for my work at the salon (because that's an ongoing thing), but I do written estimates instead and have clients sign off on drafts prior to working on the final product. But that's due to the type of work I do and you need to figure out your best method for communicating problems/delays/etc. to your clients and getting their approval for changes. I have found that using email works quite well for that, as it creates a paper trail. But I have one in-town client that I make sign off on drafts because the owner is so darn bad about noticing errors after delivery.

[Just Jocko]

Originally Posted by SplishFish

If you plan to start your business from your home, check out the zoning regulations.

This is not a problem most of the time unless you actually have clients or large deliveries to your home. For the sort of thing that Wonko is talking about (and the sort of thing I do), working out of your home is OK. Of course, I don't try to write off any of my space as a home office deduction as it's virtually impossible for me to have a dedicated office space at this time.

If one is concerned about using one's home address for a corporate address, however, it's easy enough to get a PO box and use that for your official address.